Intel profit sinks 27% on dreadful PC sales

Intel's attempt to reinvent the PC hasn't worked yet.

The world's largest chipmaker reported a quarterly profit on Thursday that fell 27% from year-ago results, dragged down by slumping PC chip sales.

Intel sold 6% fewer PC chips in the fourth quarter -- its biggest business, and one that accounts for nearly two-thirds of its overall revenue.

The results weren't unexpected. Worldwide PC shipments fell by 5% in the fourth quarter and 3.5% for 2012, according to Gartner. It was the first time since the dot-com bust of 2001 that PC shipments fell from one year to the next.

The quarter "played out largely as expected," Paul Otellini, Intel's outgoing CEO, said in a prepared statement. He called the current business climate "challenging."

Intel's net income fell to $2.5 billion, or 48 cents per share, in the fourth quarter. Sales for the Santa Clara, Calif.-based company fell 3% to $13.5 billion.

For the current quarter, Intel expects revenue of between $12.2 billion and $13.2 billion, roughly in line with Wall Street analysts' expectations. For 2013, Intel predicts sales will increase by a percentage in the low single digits, also matching with analysts' forecasts.

Intel's data center chip sales were the one ray of sunshine in an otherwise gloomy quarter. Sales in that unit rose by 4% in the fourth quarter. All other chip sales -- including mobile -- fell by 7%.

The company's profit was slightly better than it had expected, with gross margin clocking in at 58%, besting the 57% target.

Though Intel insists that it has the designs and products that users will crave in the future, it has been stymied by poor PC sales. "Ultrabook" PCs -- a brand name Intel controls -- failed to reach the 40% of all laptop sales threshold that Intel hoped for.

Industry analysts say Intel and the PC makers have failed to overcome the iPad challenge.

"Once we imagined a world in which individual users would have both a PC and a tablet as personal devices," said Mikako Kitagawa, principal analyst at Gartner. "[Now] we hypothesize that buyers will not replace secondary PCs in the household, instead allowing them to age out and shifting consumption to a tablet."